Blue Cross official stresses urgency of overhaul

Gov. Rick Snyder speaks to reporters at the Republican Party election night party, Tuesday, Nov. 6, 2012, in Lansing. Blue Cross has been exempt from paying several local and state taxes. The measures proposed by Snyder, endorsed by Blue Cross and passed last month by the Senate require the company to begin to pay those taxes, which Blue Cross estimates will average $100 million annually. (AP Photo/Detroit Free Press, Kathleen Galligan)

LANSING — Blue Cross Blue Shield of Michigan officials argued Tuesday that they will face “serious challenges” selling health insurance next year if state lawmakers don’t quickly approve legislation that would transform the organization from a charitable trust to a customer-owned nonprofit.

Meanwhile, critics of overhauling the state’s largest insurer countered that the urgency is overblown and that moving too rapidly might be more harmful to Blue Cross’ 4.4 million customers.

Mark Cook, Blue Cross’ vice president of governmental operations, told the House Insurance Committee that changes being ushered in by the federal Affordable Care Act make it necessary to level the playing field for the insurer and its rivals.

For operating as the state’s so-called insurer of last resort — meaning it must provide insurance coverage regardless of a customer’s health status — Blue Cross has been exempt from paying several local and state taxes. The measures proposed by Republican Gov. Rick Snyder, endorsed by Blue Cross and passed last month by the Senate require the company to begin to pay those taxes, which Blue Cross estimates will average $100 million annually.

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Even though it would lose its tax-exempt status, Blue Cross says the change in classification — and the lower government regulation that goes with it — is essential for it to be able to compete with other insurers under the Affordable Care Act.

Under the federal law, Blue Cross must have its products and rates ready by March for an online health exchange where people can compare and buy their own insurance plans, but the organization won’t make it because of the way it’s currently regulated by the state.

“We’re going to have serious challenges participating in the ... marketplace,” Cook said. “Our problem is the regulatory structure wouldn’t allow us to function on the exchange in the same way as competitors. ... We’re probably past where we should be.”

Supporters say the overhaul is designed to modernize Blue Cross, which is governed by a separate state law from other insurers and typically waits much longer for its rate changes to be reviewed. They also note the federal health care law scheduled to take effect on Jan. 1, 2014, requires that every insurer offer health insurance regardless of health status.

Still, critics say urgency shouldn’t come at the expense of accuracy. Don Hazaert, director of the advocacy-based Michigan Consumers for Healthcare, recommended during testimony that lawmakers could pass a one-time waiver for Blue Cross get its insurance products on the exchange and then deal with the bill that he says is “reckless” in its current form.

Among the things he’d like to see is a system where all insurance companies abide by the same rigorous, prior-approval rate-setting process and are subject to oversight by the state attorney general, as Blue Cross is now. Commercial insurers file their rates and undergo a 30-day review process by state insurance regulators.

“We don’t have to level the playing field by eliminating all the rules,” Hazaert said.

Under the law, Blue Cross also would be required to contribute up to $1.5 billion over 18 years to a nonprofit foundation that would take on some of Blue Cross’ “social mission” work — improving public health and health care access, particularly for children and the elderly.

Cook disagreed that Blue Cross would be deregulated; rather, he said, all insurers’ rates still would be subject to the state insurance code and federal law. He also questioned whether the federal Centers for Medicare & Medicaid Services would allow such a waiver in the first place.

Hazaert and others also said that lawmakers should revise sections of the legislation that relate to the creation of the charitable foundation. Some said it should guarantee the amount and timing of the funding and clearly spell out who has oversight of the foundation beyond a governor-appointed board. Hazaert’s consumers’ group recommends pursuing a “guaranteed stock option” approach, in which Blue Cross would conduct a full, fair-market valuation of the organization and pledge to submit its profits to the foundation over time.

Committee Chairman Pete Lund said such alternatives to the structure of the foundation are worth considering. His only requirement is that money is properly set aside and protected for Michigan residents.

He’s planning two more Blue Cross-related hearings and believes those sessions, coupled with numerous meetings and hearings held earlier this fall by the Senate, are appropriate preparation for the legislation to come before a full House vote by year’s end.

“Kicking it down the road just to kick it down the road doesn’t make any sense,” he said.